Trump’s tariff already hitting Canadian companies
With the worst shock to global trade in nearly a century expected to plunge Canada’s economy into recession this year, companies are scrambling to overhaul their business models, while consumers are being warned to expect higher prices on some food items starting this week.
Economists rushed to downgrade their forecasts for the year after U.S. President Donald Trump imposed sweeping tariffs on all imports from Canada on Saturday and Ottawa responded the following day with a flurry of counter tariffs, all of which are set to take effect on Tuesday.
The U.S. has imposed a 25-per-cent tariff on all Canadian goods except energy products, which will be taxed at 10 per cent.
Canada plans to retaliate on $155-billion worth of American-made products, with an initial phase of $30-billion applying to goods ranging from fruit, meat and clothing to carpets, rubber tires and appliances, and the rest following in 21 days.
The economists described the tariff war as the most significant trade shock since the U.S.’s Smoot-Hawley tariffs of the 1930s, widely seen as having exacerbated the Great Depression.
RBC estimated that Canada’s unemployment rate, currently at 6.7 per cent in December, could jump by between two to three percentage points as the trade war drags on. That would push the jobless measure to as high as 9.7 per cent, a level not seen since September, 2020, when much of the country was in pandemic lockdown.
Bank of Montreal chief economist Doug Porter warned that Canada now faces a “modest recession” this year, while Tu Nguyen at RSM Canada estimated that Canada’s economy would shrink by 2 per cent in 2025, down from a pretariff projected growth rate of 1.8 per cent.
Mr. Trump’s tariffs are already complicating business dealings for Canadian companies.
Canam Group, a privately held Quebec maker of structural steel and other construction products that’s had a hand in dozens of high-profile projects including New York’s Yankee Stadium, is bracing for difficult conversations with customers over the terms of contracts signed months ago – terms affected by the 25-per-cent levy.
“The client could find themselves with the contractual responsibility of bearing the higher costs but doesn’t accept the moral responsibility,” said Marc Dutil, Canam’s chief executive. He said he expects solutions to these thorny issues will be found on a case-by-case basis, but could include shifting future investment to the U.S., where Canam already has several plants.
“The worker is the one who will suffer as a result of this,” Mr. Dutil said. Canam employs about 5,100 people.
In the mining sector, the Trump tariffs potentially imperil the North American supply chain of critical minerals, which could jeopardize national security, said Mining Association of Canada CEO Pierre Gratton.
Fifty-six per cent of Canada’s minerals exports went to the U.S. in 2023, including key critical minerals such as uranium, potash, aluminum, copper and nickel.
Since 2020, Canada and the U.S. have been trying to forge deeper supply chain ties in critical minerals to wean themselves off supply from hostile powers such as China and Russia.
“Tariffs on Canadian minerals and metals products runs counter to American national security and economic interests,” Mr. Gratton said in a statement. “These tariffs will disrupt the essential flow of mineral and metal resources, exacerbate vulnerabilities in critical mineral supply chains that both nations have been working to address and raise the costs of doing business for our U.S. customers.”
In an interview, Mr. Gratton pointed to nickel as a critical mineral for which the U.S. relies heavily on Canada. Foreign mining giants Vale SA and Glencore PLC operate major nickel mines and refineries in Canada, while the U.S. has only one nickel mine in operation and no domestic refining capacity.
The lower 10-per-cent duty on Canadian oil and gas shows there are voices in Mr. Trump’s orbit who understand Canada’s close ties to the U.S. energy industry, said energy analyst Rory Johnston, founder of Commodity Context.
Canada is by far the largest foreign supplier of crude oil to the U.S., accounting for 60 per cent of imports, and Midwestern refineries are directly connected by pipeline and configured to process the heavier Canadian supply. There is no way the U.S. could quickly and efficiently drill for its own heavy crude to replace that supply if the intent is to discourage imports, Mr. Johnston said.
“What fascinates me is that the 10-per-cent rate reveals that people around him are aware of that structural dependence, but regardless of that he still decided to go with 10 per cent anyway,” he said.
Pathways Alliance, whose members include the country’s major oil sands producers, said a 10-per-cent tariff will raise costs for U.S. consumers of gasoline, diesel and aviation fuel, while also hurting Canada’s economy.
The group took the opportunity to blame Ottawa’s policies, which it said prevented pipeline construction, stalled industry growth and left the country vulnerable to Mr. Trump’s tariff action.
“We urge the federal government to recognize the contributions our sector makes to other regions of the country and to avoid worsening the situation by restricting energy trade or imposing export tariffs on Canadian energy to the U.S.,” Pathways Alliance president Kendall Dilling said in a statement.
Companies and trade groups in the agricultural sector warned that the tariffs would hurt consumers in both countries and called on Ottawa for support.
“This is a totally inappropriate exercise of economic power from the U.S. President,” said Massimo Bergamini, executive director of the Fruit and Vegetable Growers of Canada. And U.S. consumers will feel the pain. Approximately $4-billion of fruits and vegetables is sent south of the border annually.
Canola growers, who shipped $8.6-billion of canola oil to the U.S. in 2023, warned that the impact on the industry would be harsh.
“The damaging blow of these duties will be felt by every canola farmer, starting with the price they receive at delivery and will extend to the full range of their operations, ultimately reducing farm profitability,” said Rick White, president and CEO of the Canadian Canola Growers Association.
Consumers should brace for higher prices in the grocery aisle this week, according to Ms. Nguyen at RSM, particularly for perishable goods such as fruits and vegetables that can’t be stockpiled.
Per Bank, CEO of Loblaw Cos. Ltd., said in a statement that the grocery giant has taken steps to minimize the impact of the trade war on its customers.
That includes “doubling down” on sourcing food made in Canada and, for products where there is no Canadian source, looking at suppliers in Mexico as an alternative to U.S. products.
Canadians have reacted angrily to Mr. Trump’s tariff onslaught and his derisive comments about the country.
Social media in Canada was alight with impassioned posts from people declaring they had cancelled planned trips to the U.S. and were vowing to boycott U.S.-made goods and services.
Lists showing Canadian alternatives to American consumer brands were circulating widely, even if that distinction is not always easy to make.
Many U.S.-owned food products people are threatening to boycott are “actually made in Canada by Canadian workers, using Canadian ingredients,” said Michael Graydon, CEO of Food, Health and Consumer Products of Canada.
He cited as an example Quaker breakfast products, which are owned by U.S. conglomerate Pepsico, but many of which are made at a plant in Peterborough, Ont., with Canadian-grown oats. He also referred to Kraft Heinz, which resumed manufacturing ketchup in Canada in 2020, after a consumer backlash over its earlier decision to close its tomato processing facility in Leamington, Ont.
Even companies that do not have their own factories in Canada may use Canadian co-packers to produce their merchandise here, Mr. Graydon added. “We have to be very careful. We’re already putting a lot of strain on our manufacturing within the food category,” he said.
Industry group the Retail Council of Canada is planning to lobby Ottawa for some goods to be exempt from the retaliatory tariffs, CEO Diane Brisebois said in an interview Sunday.
“This is happening so quickly that even if you have domestic suppliers, they just won’t be able to fill the orders – if all of a sudden they have 20 new retailers trying to buy their products,” she said. “So the challenge is capacity; the ability to source in other parts of the world; and trying to maintain prices as best they can.”
With reports from Nicolas Van Praet and Kate Helmore
This article was first reported by The Globe and Mail
